The Empirical Research On The Effect Of Financial Flexibility To Enterprise’s Inefficient Investment

As a core content of enterprise’s financial activities, enterprise’s investment can not only relate to the survival and development of the enterprise directly, but also can impact on the efficiency of society’s resources allocation indirectly. It has been a huge success of our economic development in which investment has played an important role since the Reform and Opening of China, but a prominent problem which must be solved properly now is that enterprises’ inefficient investments are too common in the country. Moreover, to the sustainable business and development of the enterprise, financial flexibility is so significant as the sign of the enterprise’s ability to reflect the change of external environment and grasp favorable investment opportunities. There are more and more enterprises in favor of improving financial flexibility while foreign and domestic market environment is getting more complicated and changeable. However, because of the factors such as Imperfect Market, Incomplete Contract, Principal-agent Conflict, Asymmetry of Information and something else, improving of financial flexibility may lead to enterprise’s inefficient investment. On this account, this paper explored the effect of financial flexibility to enterprise’s inefficient investment by both theoretical analysis and empirical test with practical and theoretical significance, it can not only provide some new countermeasures to improve the efficiency of enterprises’ investments in the country but also a new approach and achievement to related researches.Firstly, this paper defined the concepts of enterprise’s financial flexibility and inefficient investment, then the paper verified the effect of financial flexibility to enterprise’s inefficient investment by some related theories and literatures.Secondly, based on referencing the Financial Flexibility Index method, improving the Richardson’s residual model, building a multiple-linear regression model, and using the panel data of677manufacturing listed companies in China from2008to2010, the paper not only measured the levels of financial flexibility and the degrees of inefficient investments of these listed companies from2008to2010,but also explored the effect of financial flexibility to inefficient investment among enterprises with different properties by some empirical tests. The results were as follows:(1)Most manufacturing listed companies in China had low levels of financial flexibility and common inefficient investments from2008to2010, and there were no significant differences from this result among enterprises with different properties.(2)Financial flexibility significantly influences on enterprise’s inefficient investment. Concretely speaking, financial flexibility is significantly positively relevant to enterprise’s over-investment but negatively relevant to enterprise’s under-investment.(3)The significances of the effect of financial flexibility to inefficient investment are different among enterprises with different properties. Concretely speaking, financial flexibility is much more significantly positively relevant to over-investment among state-owned enterprises than non-state-owned enterprises, oppositely, financial flexibility is much more significantly negatively relevant to under-investment among non-state-owned enterprises than state-owned enterprises.At the end, to prevent and solve the problem of enterprises’inefficient investments with financial flexibility in the country, by utilizing the effect of financial flexibility to enterprise’s inefficient investment, this paper suggested that a "Financial Flexibility-Investment" warning system should be built in the enterprise as soon as possible.For this purpose, the enterprise should focus on setting up and consummating an organization mechanism for the "Financial Flexibility-Investment" warning system, building an overall and scientific evaluation index system and method of financial flexibility and strengthening the supervision and management of the the "Financial Flexibility-Investment" warning system.